How to form a Trust in India

 What is a Trust

A trust is an obligation placed on a person with whom confidence or authority is placed. It is a confidence reposed on him by conveying to him the legal title to the property which he is to hold for the benefit of others.

Trust is defined in section 3 of the Trust Act, 1882 as” an obligation annexed to the ownership of property and arising out of a confidence reposed in and accepted by the owner, or declared and accepted by him, for the benefit of another or of another and the owner.

 

Requirements of a Trust

A trust is not a contract of agency to hold the property in this there is a transfer from the owner to the trustee subject to certain terms and conditions. A trust is essentially a transfer of property by one to the other to be held by the other for the benefit of some person or for carrying out some object. The purpose of a trust must be lawful, that is,

It should not be forbidden by law.

It should not be of such nature that, if permitted it could defeat the provisions of any law.

It should not be fraudulent.

It should not involve or imply injury to the person or property of another or It should not be such as would be regarded by a court as immoral or opposed to the public policy.

Where a trust is created for two purposes one of which is lawful and the other is not and the two purposes cannot be separated, the whole trust is void.

 

Creation of Trust

A trust can be created by two ways. One by a non-testamentary document and another by a testamentary document such as a will.

A trust regarding an immoveable property cannot be created orally but it must be by a document duly registered. A trust of a moveable property can be created either by a document or delivering the property to the trustee with necessary oral directions. If the directions are given in writing it would amount to a trust by a non-testamentary document which may or may not be registered.

A person who creates a trust is called the settlor, the person to whom the property is transferred on trust is called a trustee and the person for whose benefit the property is transferred is called the beneficiary or "cestui que trust”.

 

Deed of Trust

A trust relating to immovable property is required to be created by a document and such document must state and contain five essential things with reasonable certainty namely:

the intention on the part of the author of the trust or settlor to create a trust.

the purpose of the trust.

the beneficiary.

the trust property, and transfer of the property to the trustee.

 

Declaration of Trust

A trust can be created by the author himself declaring that he would hold the property, not as owner, but as a trustee for the benefit of some person or persons including himself and in such case the transfer of property is not necessary but the declaration of trust is by the owner and he alone should be the trustee. Such a declaration would, however, require registration under the Registration Act.

 

Testamentary Trust

A trust can also be created by a testamentary document i.e. Will and the same conditions as mentioned in Section 6 of the Trust Act are required to be fulfilled. Such Will also does not require registration.

A trust is also created by the application of employed trust or as a constructive trust or as derivative trust.  But they are created by fiction by of law and cannot be a subject matter of conveyancing.

 

Who can Create a Trust?

A Trust can be created by any person competent to contract or even by a manner with the authority of a competent court and respect of any property which is transferable and over which the author of the trust has dispossessing power.

 

What are the types of a Trust?

A Trust may be Private and Public.

When the purpose of the trust is to benefit an individual or a group of individuals or his or their descendants for any legal person and who is capable of holding property, it is a private trust.

When the purpose of the trust is to the benefit the public or any section of the public, it is public trust.

 

Who can be a trustee?

A trustee can be any person that is, an individual or a corporate body or a corporate sole, capable of holding property and competent to contract. and he must accept the trust.